Exploration

Lower 48 DUC Well Inventory Down to Pre-Pandemic Levels as Oil Prices Recover

Rig Count, DUC

By: Andrew Baker – NGI – Lower 48 oil and gas producers have drawn down their inventory of drilled but uncompleted (DUC) wells to pre-pandemic levels, reflecting an improved commodity pricing and demand outlook, according to a new analysis by Rystad Energy.

After reaching a multiyear high of 6,548 wells last June, the DUC count in the country’s major oil regions fell to 5,700 as of year-end, the Oslo-based consultancy said Monday.

The amount of “live” DUCs, which excludes tentatively abandoned wells that were previously drilled, also fell to 3,528 in December from 4,353 in June, researchers said. The current live horizontal oil well DUC count is similar to where it was in early 2020 before the Covid-induced market downturn began.

“Given the recent recovery in oil prices, the industry is enjoying the flexibility of further accelerating” hydraulic fracturing, aka fracking, activity “beyond current levels in the first half of the year,” said Rystad’s Artem Abramov, head of shale research. “Such an acceleration could be delivered, as can be implied from the ratio of the current ‘live’ DUC inventory to the run rate of fracking, which is still in the six-to-eight-month range, compared to the normal level of about three months seen in 2018-2019.”

This month, Rystad is forecasting a total of 830 wells to be fracked in the Lower 48, which would be the highest monthly total since last March when the downturn began.

DUC counts followed a similar trend across all the country’s major oil regions in 2020, showing an unusual inventory buildup in 2Q2020 before gradually depleting through the second half of the year, researchers said.

 

 

The Permian Basin accounted for about 55% of live DUCs as of December at around 1,900, down from a peak of 2,400 in June.

Analysis of the depletion pace of wells spudded in 4Q2019 and 1Q2020 implies that “as of today, there are still around 1,100 horizontal oil DUCs that would have been completed by now in a normal activity environment,” the Rystad team said.

Researchers added, “If a fracking increase materializes, DUC wells from 4Q2019-1Q2020 will be completed faster, but it will also require the industry to increase rig counts quicker to achieve a smoother transition from a DUC-driven activity phase to a normal operational mode.

“In other words, this scenario is possible, but it will require an increase in the reinvestment rates from what operators have currently budgeted for 2021.”

Rystad expects operators to mostly stick with their original fracking programs during the first half of the year, “but probably allocate some additional capital expenditure to a more significant increase in the rig count.

“This will result in an upside in frac activity from the second half of the year, and certain deviations from the maintenance program will be visible toward the end of the year,” assuming that West Texas Intermediate crude prices hold above the $50/bbl mark.

The total DUC inventory across seven main Lower 48 onshore oil and gas regions stood at 7,298 as of December, down from 7,443 in November, according to the Energy Information Administration’s (EIA) latest Drilling Productivity Report. The Permian accounted for 48% of the December total.

DUCs in the gassy Appalachia and Haynesville areas fell by 12 and six, respectively, to 584 and 318 uncompleted wells, EIA said.

Oilfield services firms, which perform well completions, have corroborated Rystad’s analysis so far this earnings season.

Schlumberger Ltd. CEO Olivier Le Peuch during the firm’s fourth-quarter earnings call said, “In North America, we anticipate continued momentum and a strong start to 2021 in land markets as activity continues to build up toward maintenance levels, both in well construction and completions.”

Halliburton Co. reported a 26% sequential increase in North America revenue for 4Q2020, “driven primarily by increases in both drilling and completions activity in U.S. lands,” said CEO Jeff Miller. He said completion stage counts increased in the oil basins but declined modestly in the gassier plays.

“We expect completions activity in North America to continue improving in the first half of 2021 as commodity prices remain supportive and customers complete their backlog of DUCs,” Miller said.Baker Hughes Co. CEO Lorenzo Simonelli, meanwhile, said the improvement in drilling and completions “outweighed typical fourth quarter seasonality” during the period, with further improvement expected over the first half of 2021.

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